Cogna Educacao S A S/Adr

And thank you for waiting. Welcome to Cognizant's conference call on the earnings in the fourth quarter 2022. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during Cognizant's presentation. We will start the Q&A shortly after that, and at that time, further instructions will be provided. If you need any assistance during the conference, please ask for assistance from the operator by pressing star zero. This event is also being broadcast simultaneously via the internet in a webcast. It can be accessed in the address webcastlight.msziq.com, where you will also find the presentation. slides will be controlled by you. The replay of this event is going to be available shortly after it's closed. We would like to inform you that the webcast participants can also submit questions to Cogna and they will be answered after the conference by the IR officers. Before proceeding, we would like to let you know that any statements that can be made during this conference call relative to The business outlook of Cogna, projections, operating targets and financial targets are based on the company's beliefs and premises, as well as information currently available. Future considerations are no guarantee of performance as they involve risks, uncertainties and premises, and as such, depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect Cogna's outlook and lead to results that differ materially from those expressed in such future considerations. Now, I would like to turn the floor over to Mr. Roberto Valéria, CEO of Cogna, who will begin the presentation. Please, you may proceed, sir.

Thank you. Good morning, everyone. Thank you for participating in today's conference call to talk about our results in the fourth Q22. Today with me, Federico Villa, our financial VP, Mario Guil, Vasta CEO, Dimi Malaga, current CEO and future CEO at Vasta, and Eduardo Gonzaga, our IRO and CFO. Let me remind you today's call will last one hour, 40 minutes of our presentation, and then we will have approximately 20 minutes for Q&A. Let me begin today's meeting highlighting that we are happy with our results of 2022 and also with the results of Q4 22. It was a turning point for many of our result lines. That already began in Q3, but now we see the annual consolidated numbers, not only Cogna, but most of our business units, Croton and Vasta, have grown revenue, EBITDA, EBITDA margin, and cash generation. In the fourth Q22, this is our seventh quarter in a row where we've improved revenue and net income. despite the challenging environment, inflationary pressure, and the fact that we had the consequences of the pandemic, especially in Groton. Now, let's move on to slide three for some highlights. First, net revenue growth was 12.6% in Q4, we had already grown 11.7% in Q3. So not only are we growing, but we are growing faster comparing the fourth Q to the third Q. So the trend is consistent improvement in the future. In the year, Carlton had a growth of 3.6% in revenue, anticipating the results we expected for 2023. I mean, we had already talked about better profitability and better cash generation in Croton, but we expected to have revenue growth only in 2023. However, with a better intake, we have this performance earlier. Now, marketing expenses, although we are already a benchmark in terms of the cost to gain students, however, marketing expenses continued to gain efficiency, as well as our provisions for doubtful accounts showing the quality of our customer base after the restructuring. Now, recovering a bit daggers 9.6% in the year with a gain of 1.6 percentage points in the margin. Further on, we will look into this number. Now, student dropout. I mean, despite our consistent growth and a bigger intake in the last trade cycles, the dropout remains stable. We have more freshmen, so there's pressure for dropout. But the dropout remains the same, which shows the quality of our teamwork. Higher intake. and stable dropout leads to a growth in student base. Third quarter in a row, growing student base, we've grown 11.5% student base in 2022. Croton Med, our carve-out that has been a highlight in all our conversations with the market, Croton Med has overcome our plans in net revenue and recurring EBITDA. That is, Croton Med is one of our avenues of growth. And as we have surpassed the guidance, it shows we are right and the execution is well done. Now Vasta. Vasta had excellent results. Our net revenue grew 33%, showing the strength of the recovery in this business unit. In the quarter, we've grown almost 27%. We are confident that our ACV guidance which is you know 20 growth in 2023 is perfectly feasible as we look at the last quarter last year and the first quarter this year we are on the right track now net revenue from subscription which adds value and has a higher quality of revenue for us i mean it brings resilience predictability it already accounts for 88 percent of our total net revenue And let me highlight complementary solutions have grown more than 60% in Q4 22. Of course, this is thanks to high quality work sustained by three pillars expansion of complementary solutions migration to subscription products. And in addition, the team has been able to do upsell of educational systems. That is, schools are migrating to more premium educational systems. Recovering EBITDA has grown 113% in the year. And in the fourth Q, 27%. That's an excellent result. Talking about Cogna, I've already mentioned that we believe we have... We have... had a turning point i mean in 2022 we begin a restructuring and it was executed excellently according to the plan so in 2022 we are closing this cycle the restructuring has been completed so cogner is now in a different phase beginning in 2023 net revenue growth was 6.6 percent in 2022 But let me highlight the top quality of this revenue. I mean, when you look at that, if you look at our PDA, it's coming down because we feel confident that we will be able to receive our revenue. And VASTA has more revenue coming from subscription. So that brings a higher quality of our revenue. Recovering Epidiet Cognos grown 15.8% in the year, and we've gained 2.3 percentage points margin. in the year. Now, operating cash generation has grown 9.4% in the year, reaching 540 million reals despite two effects. And let me talk about each one of them. The first was an EBITDA reduction and also cash generation reduction at SABER if we compare 2022 to 2021. And this is only the natural seasonal effect of the business. We already expected less cash and less EBITDA. But in addition, in the fourth few, 22, we did not receive part of the national textbook program. So, but we received it in January and February. And so if we, I mean, of course you cannot do this because the year ended, but if the government had in December, our cash generation would be very close to 600 million because the national textbook program receivable was 60 million. So again, it is a relevant growth, although what you see in our numbers is 54 million. Now, leverage, I believe the team has done great work in terms of liability management. I'll talk further about that. But above all, we feel confident in terms of cash generation in the company. In 2023, this cash generation is going to be enough not only for us to pay for all the debt, but also for us to amortize the debt we have. with payments due in 2023. What do I mean by that? Well, we don't need any additional funding to be able to pay for all our liability in 2023. So to my view, this is an excellent scenario. Now let's move on to slide number five, where we're going to talk about Crofton. So the first highlight, our student base in undergraduate students has grown for the third quarter in growth. We are growing on both segments in high on-site attendance and also in low on-site attendance. So, of course, we are focusing on hybrid products, but we continue to provide high on-site content programs. But also low on-site attendance still have laboratories on-site. Both segments are growing. But, well, the growth is sustained by a number of different actions, but basically the expansion in our learning centers, new programs, and new intake channels. We have been highly creative to include new student intake channels. I've already mentioned, but let me highlight dropout rate in undergraduate on both. low on-site attendance and high on-site attendance, we have stable dropout rates. Those of you who study this industry, when you have such a high growth, it is only natural for the dropout rate to grow, but not in our case. Because our intake is top quality, we can see new enrollments of high quality and also enrollment renewals has improved processes, and so therefore we have more out-of-pocket students as well, which helps us have a lower dropout rate. Now, something that I wanted to highlight, graduate programs grew 19%. It's not included in the slide, but this is the growth, 19% in 2022. So not only in undergraduate, but also graduate programs, we're growing. Actually, graduate programs is growing faster than undergraduate. Now, on slide six, we can see our productivity increase by campus. When we began the restructuring in 2020, now have 112 units that is 64 units fewer or 40 units fewer but i've already said this it does not mean that we are no longer operating on these locations we continue to operate on these locations but we are now a more asset light company So some of these students have moved to partner centers, usually other centers, other learning centers that are our partners. So we keep these students, but we have reduced our fixed cost. Our partners are highly professional, so they can absorb this operation. My final highlight here is that as we turned from 2022 to 2023 we've closed another 12 operations of our own units and that brings great benefits to us so in 2023 we have fewer units so therefore a lower cost lower capex investment lower infrastructure cost which will bring results in 2023 but our fourth quarter of 2020 we had 1450 students of high on-campus attendance and now we have more than 2 000 students that is the number of students have grown 38.6 percent now it does not impact EBITDA but when you talk about cash generation now that we have fewer units it means we have fewer rental expenses and with the high inflation this is important for us to manage our cost i have said this some units we would like to have closed earlier, but we had long-term contracts and we had fines to pay if we had terminated the contracts earlier. But now, as these contracts expire, we begin to rationalize the number of learning centers. Now, slide seven, talking about average ticket. Let me highlight that our strategy focuses on revenue growth. Let me remind you that our operation is increasingly more digital. We have great operational leverage because with digital operation, our variable cost structure is much lower for each new student on the base. What you add in terms of additional cost is very little. Of course, the average ticket is important, but more important than the average ticket is for us to make sure that the revenue is growing. And if we have operational leverage, then we have gains with this strategy. Now to explain here, you have both blocks, high attendance and low attendance. Average ticket of high attendance has grown 4%. as a result of our strategy to focus on this cost, especially on high attendance. So you can see this in the average ticket. It's not in the chart, but it's in the release. So the average ticket for high attendance students, out-of-pocket students, has grown more than 12%. And because we have fewer VS or PEP students, then this has a bigger impact. So the students that we are now focusing, you know, with fewer FIAS and as we do not offer PEP and out-of-pocket average ticket is growing 12%, when you look at the whole mix, your average grows only 4%, right, from 756 to 786. But in the future, we'll have more out-of-pocket students and fewer FIAS and PEP. Now in lower attendance, we've grown also, and you can see the direct reflection on revenue. So our revenue has grown more than 10%. Just to give you a reference in the number of students, despite students have grown, the number of students have grown 5.8%, out-of-pocket have grown 12, and FIAS and PEP have declined. All of that helps us attain this excellent result. And now looking at low attendance, the average ticket has fallen 8.6%, as I mentioned, from 212 to 194. And in low attendance, we have two different types of students. The premium distance learning, so he comes to our center once a week, and the other segment is 100% digital. In the last few years, the 100% digital portfolio has grown. So it's gaining more share in our mix. So this is not really a reduction of average tickets because it's not comparable. You cannot compare students who are premium distance learning to those students who are 100% virtual. And now that we have more students 100% online, that is why you see this effect on the average ticket. Our strategy has always been the same, grow revenue. So despite a lower ticket, the number of students has grown more than 15%. So it translates into a 5.5% revenue. So the revenue is up 5.5%, but the cost only had a marginal increase. So a good portion of this revenue is translated into EBITDA and net income. Now, Slide number eight to talk about revenue. Carleton's net revenue grew 12.6% in Q4. So after a number of quarters where our revenue was down because of our restructuring efforts, we are now in the second quarter where revenue is growing, which makes us really happy. and we believe we'll continue to have revenue growth in 2023. And the last time we had revenue growth was in 2018. So it really shows we have passed our turning point. In slide nine, we talk about cost. The first chart with the gray background, I'd like to highlight that the first, the first, bar direct cost that you get so despite we've grown a number of students the revenue has grown as well the cost remains practically stable so as a portion of revenue it's falling That's really positive because we are gaining margin. So this slide is showing that because we have more distance learning and because the marginal additional cost for each additional student is very small. That is why we've had this improvement in Q4. We've had improvement in the gross margin because of this dilution. This is what we call operational leverage. Now a comparison year on year. Despite inflation pressure, our total direct cost has remained stable. 21.1 compared to 21.2.8, I'm sorry, of our revenue. But corporate expenses, operating expenses, selling, marketing expenses, and PDA, we've actually gained a few margin points. That's why our EBITDA has grown. Final highlight, talking about operating expense, we've had a 1.9 percentage point increase in operating expenses. So this is where we have, you know, cleaning, electricity. So it reflects that we are having more operations in our centers. We have more students in our centers. Now, in the next slide, we talk about the recurring EBITDA that has grown in the corridor and also in the year in 2022. And 9.3%. 6% with a margin gain of 1.6 percentage points. Now, in slide 11, we talk about the quality of our revenue, the quality of our AR, or accounts receivable, average collection period, or ACP. We began our restructuring in the fourth Q of 2020. Our ACV was 78 days. Today, 54 days. That's the average collection period. 54 days, so this is a great improvement. But it's important to say that the coverage ratio remains stable, 68.8%. Now, in terms of the percentage of our net revenue, in 2021, PDA represented 15%, and this year, 12.2%, as I mentioned a few slides ago. Finally, CrotonMed. We're very happy with the results, with our medical programs. This is a carve-out from Croton that has increasingly more independence from Croton. We had a guidance for revenue and EBITDA. We have surpassed both. We have 580 medical seats and a number of organic seats that will be our organic growth in terms of sales. With that, let me now give the floor to Mario Guio, Vasta CEO. He'll talk about Vasta.

Thank you very much. Well, this is a very special call for me because I'm retiring next. I would like to start on slide 14, in which we'll discuss net revenue in the fourth quarter 2022. Just to remind you, you know, the fourth quarter in a year is always the first quarter in the new trade cycle of all subscription products. The non-subscription products follow their own cycle, but with subscription products, this is always the beginning of a new cycle. So in 4Q22, revenue increased almost 27%, reaching a little above $100. million BRL, and it's very important to highlight again what Roberto said, our complementary solutions revenue grew more than 60%, which demonstrates the company's ability to penetrate and introduce new products that complement the hourly based products that we offer. Now, on the next slide, turning to recurring EBITDA, we reached almost 200 million BRL last year. This was basically flat in comparison to the previous year. But in this margin, we have to account a judicial reorganization that, as you know, is taking place. This was an extraordinary event. And when we look at the whole year, then we can see the results of all efforts that we used to improve our beta N margin, reaching a number above 27% and a margin that is almost twice as much as in 2021, even though the margin in 21 also showed the effects of the pandemic. In slide 16, I would like to say a few words about this gain in margin. Where did it come from? Starting with the fact that the consolidated revenue for 2022 was more than 33% higher than in 2021, and our costs and expenses grew far below that at 17%. Now, to focus on the second chart in the slides, Because in the comparison for Q21 to Q22, we see the impact of the traditional reorganization. So it's very important that we focus on the right side of the slide, where we have clustered all the major costs and expenses. So there were reductions everywhere in corporate expenses and operating expenses. So the percentage was minus 2.1%, in fact. And the PDA went up, but owing to the judicial reorganization, the bankruptcy, and this took place while we were still crunching the numbers, so we decided to provision 100% of the amount. Excluding this effect, our PDA would be at approximately 4%. And this has shown a decrease. It was over 4%. And so excluding this extraordinary event that I mentioned, it would be at 2.4%. So we are indeed moving closer to our traditional PDA.